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Ontario divisional court addresses enforceability of termination clause in federal jurisdiction

frustration-of-contractIn the past three years there have been a number of cases arising from the Ontario courts considering whether or not termination clauses which purport to rebut the implied presumption of common law notice and limit an employee’s entitlements upon termination are enforceable. The enforceability of such clauses can have significant consequences on the quantum of an individual’s damages because an employee’s common law entitlements typically exceed his/her minimum entitlements under the applicable minimum standards legislation. The Ontario Division Court recently considered the enforceability of a termination clause in the federal sector in Luney v. Day Ross Inc., 2015 ONSC 1440.

In this case, the Plaintiff signed the following termination clause prior to commencing employment with the defendant which is a federally regulated trucking business:

If your employment is terminated for other than ‘just cause’, or if a competent tribunal should rule that your termination was ‘unjust’, you will be entitled to two weeks [sic] notice or pay in lieu of notice and a severance of one week’s regular pay for each full year of service, less statutory deductions. The payments are not to exceed the equivalent of 15 weeks [sic] pay.

It is understood and agreed that in the event the aforesaid notice and severance entitlements are not in conformity with the notice and severance provisions prescribed by the Canada Labour Code or other similar legislation, the statutory minimum’s [sic] shall apply and be considered reasonable notice and severance. Discussion of individual salaries may be grounds of dismissal.

The foregoing notice and severance payments will satisfy any and all obligations to you by Day & Ross Inc. or any affiliated company arising out of or in any way connected with the termination of your employment, including any obligations arising under the Canada Labour Code and similar legislation for notice, severance pay or reinstatement.

The Plaintiff was terminated after 12 years and 3 months of service and he brought a motion for Summary Judgement alleging the termination clause was unenforceable and he was entitled to his common law entitlements. The Plaintiff lost and then appealed to the Divisional Court.

The Divisional Court held that the termination clause clearly rebutted the presumption of common law notice. In particular, the Court held that the following sentence, “The foregoing notice and severance payments will satisfy any and all obligations to you” was broad enough to rebut the presumption of common law notice and limit the individual entitlements.

The Divisional Court also held that the termination clause did not violate the Canada Labour Code. The individual argued that this clause prevented him from securing all of the possible remedies only available to federally regulated employees under section 240 of the Canada Labour Code including non-monetary remedies such as the right to reinstatement. The Court disagreed and held nothing prevented the individual from filing a section 240 complaint for unjust dismissal. The Court held that an Adjudicator would not be bound by this termination clause from awarding non-monetary remedies. The Court observed that the individual was statutorily barred from filing a section 240 complaint in any event because he had being terminated as a result of a corporate reorganization.

The Divisional Court rejected the argument that the termination clause was invalid because it did not expressly provide for benefits. The court held that termination clause expressly provided that “the statutory minimums shall apply and be considered reasonable notice and severance”. The Court held this clause was sufficient to include any entitlement to benefits.

This case shows how termination clauses can be drafted to rebut the presumption of common law notice. The termination clause should clearly specify that on termination the employee shall receive all of the entitlements he/she is entitled to under applicable minimum standards legislation with reference to the precise legislation and then confirm that these payments rebut the presumption of common law notice.

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Simon Heath, BA, MIR, LLB, Heath Law

Employment Lawyer and principal at Heath Law, Employment Lawyers
Simon Heath, BA, MIR, LLB, is the Principal of Heath Law, Employment Lawyers in Mississauga, Ontario. Simon represents both public and private-sector employers and employees (unionized and non-unionized) at all stages of the employment relationship with a focus in the areas of employment law, labour law and human rights law; these representations are made at all levels of courts and all administrative tribunals. Read more
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